Jan 15, 2019

Apple's Next Move - Be More Like Microsoft?

Which is not to say moving to Seattle or embracing Windows.
But it could mean getting past the need for control and partnering more. JL

Christopher Mims reports in the Wall Street Journal:

Apple is hardly the first giant company that tried to control every part
of its ecosystem, Microsoft and Sony come to mind. The strategy works
until it doesn’t. As Apple stumbles in China and is beset by a winter
for smartphone sales, opening up may not merely be a means of
maintaining growth, but survival. It appears
finally willing to sacrifice some hardware revenue in the hopes of growing its services. (But) While Apple’s strategy of porting its services could help the company in
the long term, to
the extent Apple is copying the strategies of, and in some ways
leaning on, its competitors, it’s worth asking whether the company is
running low on ideas.Apple is making a small but radical shift in its corporate strategy. The company is blasting holes in the boundaries of its staunchly defended walled garden.

For years, a big part of Apple’s premium experience—and justification for its premium pricing—has been that its software and services are only available on its hardware. At this year’s CES tech show in Las Vegas, it’s become apparent that the company is ready to try something different.
Samsung announced Monday that Apple’s iTunes software—and the video library it lets people make purchases from—will be available on its smart TVs. In addition, these TVs will support AirPlay 2, Apple’s wireless standard that allows Apple’s iPhones and other devices to stream content directly to those TVs. That was followed by a flurry of AirPlay 2 announcements from other TV makers including LG, Vizio and Sony.
In December, Amazon announced that Apple Music was coming to Echo speakers.
An acute Apple observer might ask: What about Apple TV? What about the HomePod? They appear to be left dangling in the wind, with less to differentiate themselves from these more popular devices—which even Apple’s most loyal customers might already own.
While the company did port iTunes to Windows in 2003, which helped the nascent service and the iPod take off, this strategy is mostly alien to Apple. But it’s familiar to Google (you don’t need an Android phone to use Gmail), Amazon (you don’t need a Kindle to read Amazon’s e-books) and even—more recently— Microsoft.
Steve Ballmer’s reign was characterized by a Windows-everywhere strategy in which the bulk of Microsoft’s offerings had to both run on and support the company’s core OS. Under Satya Nadella, the company has been characterized by rapid strides to get Microsoft’s services onto every device possible, not least of all those running an OS from Apple or Google. The strategy has paid off handsomely—as of this writing, the company’s market capitalization is higher than Apple’s.
Apple is hardly the first giant company that tried to control every part of its ecosystem—Microsoft and Sony come to mind. The strategy works until it doesn’t. As Apple stumbles in China and is beset by a winter for smartphone sales, opening up may not merely be a means of maintaining Apple’s growth but ultimately its survival. It appears finally willing to sacrifice some hardware revenue in the hopes of growing its services. Still, these are baby steps. We’re a way off from the company feeling pressure to, say, license iOS to Huawei.
“In a way, this is a little bit of Apple playing defense,” says tech analyst Patrick Moorhead. Not everyone is going to pony up extra for Apple’s branded entertainment devices, he adds, so it’s instead betting that wider availability will boost overall subscriptions.
A move by Apple to decouple sales of hardware from services revenue couldn’t come sooner. The company’s stock tumbled after it admitted a rare and significant miss on revenue, which Chief Executive Tim Cook attributed mostly to slumping sales in China. However, the company also restated its growth in its services business: It’s up 18% from a year ago, but analysts had expected it to increase 24%. This suggests Apple’s hardware unit sales and services revenue are tightly coupled. How then could increasing services revenue make up for declining phone sales, as Mr. Cook has been suggesting lately?
The timing of Apple’s recent sales miss might seem suspiciously related to the push onto competitors’ devices, but hardware and software integration deals like these can take years, says Mr. Moorhead. For instance, it dropped the requirement that devices have a special, Apple-certified chip in them to support AirPlay 2, the company’s streaming media protocol. This led to the latest adoption by a handful of top TV brands. It isn’t a true content partnership, but saying something like, “Hey Siri, play ‘Mission Impossible: Fallout’ on the Vizio TV” would now be possible.The Samsung deal is deeper: It includes an app that lets users in over 100 countries download and play Apple iTunes movies and TV shows. And it isn’t just for new sets—a firmware update will bring the app to 2018 Samsung TV models as well.
Apple may dominate sales of high-end smartphones in the U.S., but for the rest of the world Android is the norm. “This could give the other three-quarters of the world the first taste [of Apple] they may have ever gotten,” says Mr. Moorhead.
All of this makes even more sense if the reports that Apple is working on a Netflix-style streaming service prove true. Whatever shape it takes, the company is splashing out $1 billion on original programming, including fare from Oprah Winfrey and Steven Spielberg. For Apple to get enough sign-ups for such a service, it must look beyond Apple TV. Its market share is anemic: only 15% of the U.S. installed base of media streaming devices, down from 19% in 2016.
While Apple’s strategy of porting its services could help the company in the long term, there is one way in which it’s potentially ominous: To the extent that Apple is now copying the strategies of—and in some ways leaning on—its competitors, it’s worth asking whether the company is running low on ideas.

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As a Partner and Co-Founder of Predictiv and PredictivAsia, Jon specializes in management performance and organizational effectiveness for both domestic and international clients. He is an editor and author whose works include Invisible Advantage: How Intangilbles are Driving Business Performance.Learn more...